Chapter 10 - Perfect Competition

Question 1

What are Price Makers / Price Setters?

Answer 1

Monopolistic or imperfectly competitive firms

Question 2

What is the shape of the demand curve for a perfectly competitive firm!

Answer 2

Horizontal

Question 3

What shape is the demand curve for firms who are not perfectly competitive?

Answer 3

Sloping downward for “making” and “setting” their own prices

Question 4

What does the shut-down rule say?

Answer 4

Also known as start-up rule.

Shut down or TR is = or greater than TVC

Question 5

What does the Profit Maximising rule say?

Answer 5

Profit is maximised when MR = MC

also MC = P

Question 6

What are the 7 requirements / conditions for perfect competition?

Answer 6

1) large number of buyers and sellers
2) no collusion
3) homogeneous goods
4) freedom of entry and exit
5) perfect knowledge of market conditions
6) no government intervention
7) factors of production must be mobile

Question 7

What are Price Takers?

Answer 7

Perfectly competitive firms